The Welshman signed a new one-year deal earlier this week after some virtuoso displays for the club this season.
At 35-years-old manager Sir Alex Ferguson warned the veteran he would not feature on a regular basis this season but his recent performances have made it hard for the Scot to drop him.
Giggs claimed his first league goal of the season against West Ham on Sunday making him the only player to score in every season since the Premier League began in 1992.
"If anybody deserves a new contract it is Ryan," Phelan said.
"He has got his rewards for all the hard work he puts in. He trains exceptionally well and enjoys the game more than he ever did.
"He's Mr Manchester United. He has been there, seen it and done it, and he wants to do more."
YoungsterThe Red Devils assistant can clearly remember when Giggs broke into the first team as a raw 17-year-old in 1991.
"I was probably the one who left when he came through," he added.
"He was one of the new generation. You could see, even underneath when I was playing in the team, he was on the verge of breaking in.
"It was great to watch him training. Everybody was talking about it. Once he got in there was no stopping him."
18 years on and with a club record 787 appearances behind him Phelan insists that Giggs remains an example to all the players at Old Trafford but especially those youngsters looking to break into the team.
The former United midfielder admits that there was never any doubt that Giggs would make the grade.
"It was so obvious," he stated.
"It all starts with the coaches saying they have some raw talent. That filters through to the dressing room, then everybody wants to have a sneaky look.
"That is the time when you start to panic because you know he is coming through and is going to be there for numerous years.
"It will either push you further forward or he will push you out. That is the natural progression for a football player."